The plunging price of gold is an expression of hope by the markets

Gold is the ultimate hedge against bad stuff. If people are selling it, maybe things aren't so bad.

One of the big market stories of the day is the continued decline of precious metals. The price of gold is almost 20 per cent off its late 2012 high of $1,794 per oz, and a huge chunk of that fall has happened in the last two weeks – this morning alone, it's down 3.8 per cent and is still falling.

It's always tricky to read anything into market movements, unless they're as obvious a boom-and-bust cycle as something like Bitcoin, and that goes double for something like gold. It, and precious metals in general, have semi-unique fundamentals, because nearly all of their worth is tied up in the collective agreement that they are valuable. A bar of gold is worth money because everyone agrees it is worth money; contrast that with a barrel of oil, which can be used to make things and provide energy, or a share in a company, which might pay dividends.

But the price of gold isn't just driven by unpredictable speculation. The whole thing is wrapped up in beliefs about the nature of fiat currency, inflation, and macroeconomics. Joe Weisenthal explains:

On one hand you have established economists, who believe the government has tools at its disposal to address a crisis. These tools include deficit spending and a violent expansion of the Fed’s balance sheet.

Conversely you have critics who slam the arrogance of economists and central planners, and who have predicted that all of this economic acrobatics would result in an economic collapse, hyperinflation, and an explosion in the price of gold. Gold is important to their worldview, because it represents a quasi-money that’s not tied to any government or central bank.

Investing in gold is a rejection of government money and finance. Money flowing into gold-related assets represents a belief that rocks (however shiny they are) are a better place to invest than human endeavors (like stocks).

You can see this belief reflected in the tendency sites like ZeroHedge have towards showing things priced "in gold". So, for instance, the S&P priced in gold has been shrinking since 2000: the idea is that gold is still the only real money, and must therefore be the point from which all other observations are made. (Paul Kedrosky took this to its logical conclusion, charting the price of gold in gold)

But regardless of the reasons for the collective agreement that gold holds value, it does. And that means it has some properties as an investment vehicle. Traditionally, it's thought to be good to own in periods of high inflation and poor growth in the value of the stock market, and Paweł Morski points out what the logical conclusion of that is:

Gold – unlike bank deposits, equity or bonds, or even banknotes – is separate from the real economy: it’s what you invest in when you want to take a breather from what’s happening in the real economy. That’s actually only a sensible thing to do in pretty extreme circumstances. Gold returns are utterly crushed by equity markets in the long term – to a really astonishing degree for those economies where we have continuous equity markets.

Compared with shares in pre-revolutionary China or pre-war Poland, gold returns look pretty good. Gold is less an index of how confident we are that our leaders a) want to b) know how to do the right thing as it is an index of how sure we are that they won’t completely and utterly screw the pooch.

Also worth quoting is Morksi's absolute belter, because just look at it:

I have nothing to say about the Gold Standard other than it’s the obvious solution for those who feel the main problems with the euro are that it’s too flexible and covers too few countries.

Gold is an oddity, but the people who buy it say something very real about faith in the economic system. It may not be particularly good for hedging against downsides within that system, but as one of the few ways people can hedge against the total breakdown of order, it has a purpose. The continued slide, therefore, is a rare sign of hope in these beleaguered days. Some people, at least, think we're further from armageddon than we used to be.

Gold bars. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Getty
Show Hide image

Donald Trump vs Barack Obama: How the inauguration speeches compared

We compared the two presidents on trade, foreign affairs and climate change – so you (really, really) don't have to.

After watching Donald Trump's inaugural address, what better way to get rid of the last few dregs of hope than by comparing what he said with Barack Obama's address from 2009? 

Both thanked the previous President, with Trump calling the Obamas "magnificent", and pledged to reform Washington, but the comparison ended there. 

Here is what each of them said: 

On American jobs

Obama:

The state of our economy calls for action, bold and swift.  And we will act, not only to create new jobs, but to lay a new foundation for growth.  We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together.  We'll restore science to its rightful place, and wield technology's wonders to raise health care's quality and lower its cost.  We will harness the sun and the winds and the soil to fuel our cars and run our factories.  And we will transform our schools and colleges and universities to meet the demands of a new age.

Trump:

For many decades we've enriched foreign industry at the expense of American industry, subsidized the armies of other countries while allowing for the very sad depletion of our military.

One by one, the factories shuttered and left our shores with not even a thought about the millions and millions of American workers that were left behind.

Obama had a plan for growth. Trump just blames the rest of the world...

On global warming

Obama:

With old friends and former foes, we'll work tirelessly to lessen the nuclear threat, and roll back the specter of a warming planet.

Trump:

On the Middle East:

Obama:

To the Muslim world, we seek a new way forward, based on mutual interest and mutual respect. To those leaders around the globe who seek to sow conflict, or blame their society's ills on the West, know that your people will judge you on what you can build, not what you destroy. 

Trump:

We will re-enforce old alliances and form new ones and unite the civilized world against radical Islamic terrorism, which we will eradicate completely from the face of the earth.

On “greatness”

Obama:

In reaffirming the greatness of our nation we understand that greatness is never a given. It must be earned.

Trump:

America will start winning again, winning like never before.

 

On trade

Obama:

This is the journey we continue today.  We remain the most prosperous, powerful nation on Earth.  Our workers are no less productive than when this crisis began.  Our minds are no less inventive, our goods and services no less needed than they were last week, or last month, or last year.  Our capacity remains undiminished.  

Trump:

We must protect our borders from the ravages of other countries making our product, stealing our companies and destroying our jobs.

Protection will lead to great prosperity and strength. I will fight for you with every breath in my body, and I will never ever let you down.

Stephanie Boland is digital assistant at the New Statesman. She tweets at @stephanieboland